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Harley braces for more Trump trade harm after his pledge to help

The Harley-Davidson logo is seen on the fuel tank of a motorcycle on display at the Oakland Harley-Davidson dealership in Oakland, California, on April 14, 2017. David Paul Morris/Bloomberg

Harley-Davidson, one of the first American companies Donald Trump pledged to help after taking office, is bracing for a one-two punch of harm at the hands of the president.

The motorcycle maker is warning that Trump's tariffs on steel and aluminum could drive up costs. European leaders' threats of retaliation -- which have specifically called out the iconic American company -- also risk hurting sales overseas.

Harley's role as an American icon has contributed to Trump evoking the company or its industry when he attacks other countries for what he says are unfair trade practices. It's also one of the first names on the tip of other leaders' tongues when they push back. This easy-to-politicize role is looking more like a liability than a strength at a time that the Milwaukee-based manufacturer is struggling with sluggish demand for its big bikes.

Trump's trade policies -- and the retaliation they may inspire -- are "probably not going to help them out in the short term," Gerrick Johnson, an analyst with BMO Capital Markets, said by phone. "It's ironic," since the president praised the company so quickly after moving into the White House, he said.

Harley supports free and fair trade, spokesman Michael Pflughoeft said in an emailed statement. Steel and aluminum tariffs would boost raw material costs regardless of where the company is sourcing them he said, and the punitive taxes that could be introduced in response would have a "significant impact" on its sales, dealers, suppliers and customers.

"I get what he's trying to do," Johnson said of Trump. "I hope he's bluffing, and I hope he's just trying to get others to remove their restrictions. It'd be nice if there was open, free trade across the board. Harley would be doing a lot better."

Harley's stock has dropped about 13 percent this year.

The tariffs on U.S.-built motorcycles that European Commission President Jean-Claude Juncker floated last week would primarily hit Harley. While the company sold 61 percent of its bikes in the U.S. last year, Europe was its No. 2 market, accounting for 16 percent of deliveries to retail buyers.

"That's meaningful," said Jaime Katz, a Chicago-based analyst with Morningstar Inc. "For every action, there's a reaction, and I think we're seeing that that's sort of how this is playing out now."

Trump's plan to levy steel and aluminum imports isn't the first time the president's trade policies have hurt Harley.

Chief Executive Officer Matt Levatich was a supporter of the Trans-Pacific Partnership, which could have lowered barriers for its bikes in some of the largest markets for motorcycles in the world. Trump withdrew from the long-planned trade pact in January 2017.

A week later, the president hosted Levatich and other Harley executives and union leaders for a White House listening session and praised the company.

"We want to make it easier for business to create more jobs and more factories to be made in the U.S., and you're a great example of that," Trump said at the time.

U.S. motorcycle sales have continued to slump since then, spurring Harley's decision in January to close a plant in Kansas City, Missouri, eliminating about 260 jobs. The state's Republican and Democratic senators and representatives last month asked Levatich to reconsider and said they learned of plans to shut the factory through media reports.

Trump has kept on the attack, criticizing India last month for its hefty tariffs on large imported motorcycles. He said Prime Minister Narendra Modi told him the country would cut its duties to 50 percent from as much as 100 percent and has used the anecdote as a reason he wants to pursue a reciprocal tax -- a term he's used for imposing levies that match what other countries charge.

Harley has worked to get around India's tariffs by building a factory in the country to assemble bikes using many U.S.-made parts. BMO's Johnson said the company had planned to grow its Asian sales by getting levies reduced through the TPP.

Morningstar's Katz said she's waiting to see if Trump's tariffs actually get implemented and what kinds of options are available for companies to avoid them.

"What Donald Trump says changes day to day," she said. "So to prognosticate what the tariffs are going to look like in three months or whenever it actually becomes executable -- it can change multiple times."